What Is the Nikkei?
Let me explain the Nikkei to you directly: it's short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. This is a price-weighted index made up of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange. Think of it as the equivalent to the Dow Jones Industrial Average in the United States.
Key Takeaways
Here's what you need to know: the Nikkei is Japan's leading stock index, consisting of the country's top 225 blue-chip stocks. As a price-weighted index, it's essentially an average of the share prices of all the listed companies. You'll find well-known names like Sony Corporation, Canon Inc, Nissan Motor Company, and Honda Motor Company in there. For comparison, there's also the Tokyo Price Index, or TOPIX, which is a capitalization-weighted index covering all stocks on the Tokyo Stock Exchange.
Understanding the Nikkei
I want to dive deeper into this for you. Formerly known as the Nikkei Dow Jones Stock Average from 1975 to 1985, it's now named after the Nihon Keizai Shimbun, or Japan Economic Newspaper—commonly called Nikkei—which sponsors its calculation. The index has been calculated since September 1950, with data going back to May 1949. Companies like Canon Incorporated, Sony Corporation, and Toyota Motor Corporation are among the best-known in the index. It's the oldest stock index in Asia.
The Nikkei emerged during Japan's rebuilding and industrialization after World War II. Stocks in it are ranked by share price, not market capitalization, which differs from most indexes. Valuations are in Japanese yen, and the composition gets reviewed every September, with changes implemented in October.
Fast Fact
Just so you know, according to the Nikkei 225 Stock Average Fact Sheet, the index is calculated every five seconds while the Tokyo Stock Exchange is open.
The Tokyo Stock Exchange and the Nikkei Index
Let's talk about the Tokyo Stock Exchange, or TSE, which was established in 1878. It started as a marketplace for bonds issued by the government to samurai, and it also handled exchanges for gold and silver currencies. By the 1920s, it expanded to include stock trading.
During World War II in 1943, the Japanese government merged the TSE with five others to create a single Japanese Stock Exchange, which shut down in August 1945 near the war's end. The TSE reopened on May 16, 1949, under the Securities Exchange Act.
Japan went through a major asset bubble in the late 1980s, when the government used fiscal and monetary measures to fight a recession triggered by the yen's 50% appreciation earlier in the decade. Stock prices and land values tripled from 1985 to 1989, and at its peak, the TSE represented 60% of global stock market capitalization.
The bubble burst in 1990, causing the Nikkei to drop by one-third that year. By October 2008, it traded below 7,000, marking a decline of over 80% from its December 1989 high. It rebounded between June 2012 and June 2015 thanks to government and Bank of Japan stimulus, but it remained nearly 50% below the 1989 peak.
TOPIX vs. Nikkei
You should understand the difference between TOPIX and the Nikkei. The Tokyo Price Index, or TOPIX, is another key index on the Tokyo Stock Exchange. While the Nikkei covers 225 selected stocks from the TSE, TOPIX includes all stocks on the exchange.
The Nikkei is price-weighted, meaning it's an average of share prices, so it's more swayed by high-priced stocks like those in technology. TOPIX uses a capitalization-weighted approach for all stocks in the TSE's first section, making it more influenced by companies with large market values, such as financials.
Special Considerations
Keep in mind that you can't directly purchase an index, but there are exchange-traded funds (ETFs) that mirror the Nikkei. On the Tokyo Stock Exchange, options include Blackrock's iShares Nikkei 225 and Nomura Asset Management's Nikkei 225 Exchange Traded Fund. For a dollar-denominated option, there's the MAXIS Nikkei 225 Index ETF, which trades on the New York Stock Exchange.
Other articles for you
An earnings call is a conference where a public company's management discusses financial results and answers questions from analysts and investors.
A flow-through entity passes income directly to owners for taxation, avoiding corporate-level taxes and double taxation.
Kanban is a visual system for managing inventory and workflows in just-in-time manufacturing to reduce waste and improve efficiency.
An unrealized loss is a decrease in an asset's value that hasn't been realized through sale, remaining theoretical until the asset is sold.
The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank focused on funding infrastructure projects in Asia to promote economic and social development.
This text is a comprehensive directory from Investopedia on altcoins, defining them as alternatives to Bitcoin and listing various related articles.
Expenses are the costs a company incurs to generate revenue, categorized mainly as operating and nonoperating.
Net receivables represent the money a company expects to collect from customers after accounting for likely uncollectible amounts.
Bank drafts provide a secure, bank-guaranteed payment method for large transactions, differing from checks and money orders in mechanics, costs, and usage.
A store of value is an asset that maintains its worth over time without depreciating.